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ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

Document Description: ICAI Notes 2.2, Ledger for CA Foundation 2022 is part of Principles and Practice of Accounting preparation. The notes and questions for ICAI Notes 2.2, Ledger have been prepared according to the CA Foundation exam syllabus. Information about ICAI Notes 2.2, Ledger covers topics like and ICAI Notes 2.2, Ledger Example, for CA Foundation 2022 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for ICAI Notes 2.2, Ledger.

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Learning Objectives 

After studying this unit, you will be able to :

  • Understand the concept of Ledgers.
  • Learn the technique of ledger posting sand how to balance an account.
  • Learn the technique of opening accounts each year taking closing balances of the previous year. Note also the use of 'balance c/d' and 'balance b/d'.


1. INTRODUCTION

After recording the transactions in the journal, recorded entries are classified and grouped into by preparation of accounts and the book, which contains all set of accounts (viz. personal, real and nominal accounts), is known as Ledger. It is known as principal books of account in which account-wise balance of each account is determined.


2. SPECIMEN OF LEDGER ACCOUNTS

A ledger account has two sides-debit (left part of the account) and credit (right part of the account). Each of the debit and credit side has four columns. (i) Date (ii) Particulars (iii) Journal folio i.e. page from where the entries are taken for posting and (iv) Amount.

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

3. POSTING

The process of transferring the debit and credit items from journal to classified accounts in the ledger is known as posting.


3.1 RULES REGARDING POSTING OF ENTRIES IN THE LEDGER

1. Separate account is opened in ledger book for each account and entries from ledger posted to respective account accordingly.

2. It is a practice to use words ‘To’ and ‘By’ while posting transactions in the ledger. The word ‘To’ is used in the particular column with the accounts written on the debit side while ‘By’ is used with the accounts written in the particular column of the credit side. These ‘To’ and ‘By’ do not have any meanings but are used to represent the account debited and credited.

3. The concerned account debited in the journal should also be debited in the ledger but reference should be of the respective credit account. For example: Rent paid by cash ` 500. The journal entry for this transaction would be.

 

4. BALANCING AN ACCOUNT

At the end of the each month or year or any particular day it may be necessary to ascertain the balance in an account. This is not a too difficult thing to do; suppose a person has bought goods worth ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 1,000 and has paid only ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation850; he owes ` 150 and that is balance in his account. To ascertain the balance in any account, what is done is to total the sides and ascertain the difference; the difference is the balance. If the credit side is bigger than the debit side, it is a credit balance. In the other case it is a debit balance. The credit balance is written on the debit side as, “To Balance c/d”; c/d means “carried down”. By doing this, two sides will be equal. The totals are written on the two sides opposite one another.

Then the credit balance is written on the credit side as “By balance b/d (i.e., brought down)”. This is the opening balance for the new period. The debit balance similarly is written on the credit side as “By Balance c/d”, the totals then are written on the two sides as shown above as then the debit balance written on the debit side as, “To Balance b/d”, as the opening balance of the new period.

It should be noted that nominal accounts are not balanced; the balance in the end are transferred to the profit and loss account. Only personal and real accounts ultimately show balances. In the illustration given above, one will have noticed that the capital account, the purchases account, sales account, the discount account, the rent account and the salary account have not been balanced. The capital account will have to be adjusted for profit or loss and that is why it has not been balanced yet.
Illustration 1 Prepare the Stationery Account of a firm for the year ended 31.12.2011 duly balanced off, from the following details:

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

Solution
ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation


Illustration 2  Journalise the following transactions in the books of a trader
Debit Balance on January 1, 2011
Cash in Hand ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation8,000, Cash at Bank ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 25,000, Inventory of Goods ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 20,000, Building ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation10,000. Trade receivables: Vijay ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation2,000 and Madhu ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation2,000.
Credit Balances on January 1, 2011:
Trade payables: Anand ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation5,000. Capital ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation55,000
Following were further transactions in the month of January, 2011:

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

 

Illustration 3

The following data is given by Mr. S, the owner, with a request to compile only the two personal accounts of Mr. H and Mr. R, in his ledger, for the month of April, 2011.

1 Mr. S owes Mr. R ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 15,000; Mr. H owes Mr. S ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation20,000.
4 Mr. R sold goods worth ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation60,000 @ 10% trade discount to Mr. S.
5 Mr. S sold to Mr. H goods prices at ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 30,000. 
17 Record a purchase of ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation25,000 net from R , which were sold to H at a profit of ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation15,000.
18 Mr. S rejected 10% of Mr. R’s goods of 4th April.
19 Mr. S issued a cash memo for ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation10,000 to Mr. H who came personally for this consignment of goods, urgently needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment received, ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation20,000 was by cheque).
26 R’s total dues (less ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation10,000 held back) were cleared by cheque, enjoying a cash discount of ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation1,000 on the payment made.
29 Close H’s Account to record the fact that all but ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation5,000 was cleared by him, by a cheque, because he was declared bankrupt.
30 Balance R’s Account.

Solution

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation

Working Notes:

(1) Sale of ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 10,000 on 19th April is a cash sales, therefore, it will not be recorded in the Personal Account of Mr. H; and (2) On 22nd April, Mr. H owes Mr. S ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation90,000, amount paid by Mr. H ½ of ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation90,000 less ½% discount i.e. ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation45,000– ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation225 = ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation44,775. Out of this amount, ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 20,000 paid by cheque and the balance of   ICAI Notes 2.2, Ledger Notes | Study Principles and Practice of Accounting - CA Foundation 24,775 in cash.

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